TOKYO (Reuters) - Japan’s financial regulator is planning to question regional banks that are deemed to have poor business models, sources with direct knowledge of the matter said on Friday.
The Financial Services Agency is concerned some regional banks are neglecting their core lending operations to local businesses. It is worried they instead are relying heavily on securities investment and loans for apartments as rental properties, the sources said.
The sources said the agency will inspect regional banks and direct them to change their business models if necessary. It is not known how many banks will be targeted.
The sources declined to be named because they are not authorized to speak publicly on the matter. The FSA did not immediately respond to a request for comment.
The agency has been urging regional banks to come up with more sustainable ways to make money as they face diminishing returns on their traditional lending business as Japan’s population gets older and interest rates remain low.
Profits from lending and fees at Japan’s smaller banks are falling faster than expected, with more than half of the institutions losing money on these core operations, a draft report being prepared by FSA showed.
Bleak prospects for regional banks have fueled speculation that the industry is due for consolidation.
“Consolidation is inevitable and a good thing,” Naoki Ohgo, who advises FSA, told Reuters last month.
Reporting by Taro Fuse and Takahiko Wada; Editing by Chris Gallagher and Sam Holmes